Services PMI questions last rally of GBP ahead of BoE meeting

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UK services PMI slowed down more than expected in the prior month  
Prices pressures wear off a bit, but remain above their long-term averages  
Data creates headache for Carney as the BoE meets this Thursday
 
UK services PMI unexpectedly slid from 54.2 to 53 in January while economists surveyed by Bloomberg had foreshadowed just a tiny decrease to 54.1. Taking into account other PMIs for the same period (manufacturing and construction) and underlining that the services sector is the most crucial one in the British economy one may argue that the BoE could have a hard nut to crack when it meets on Thursday.


UK services PMI takes a step back matching the overall slowdown seen elsewhere.


On the face of it, there is contrast between the soft and hard data in the UK economy, while the former points to a more lacklustre trend the latter suggests a relatively solid pace of improvement. In effect, the BoE could have a dilemma when considering the future moves in rates on Thursday whereas the pound might find itself under selling pressure as interest rate traders have already priced in a full 25 bps rate increase till November. The details of today’s survey indicate that while price pressure came off its highs in the first month of the year it remained well above its long-term trend.


Apart from it, service providers eagerly engaged in hiring with an employment component having now increased constantly for one and a half years. The rate of job creation sped up as well reaching its four-month high painting quite the rosy backdrop for the domestic labour market and therefore for inflation should wage growth build. Moreover, the Markit stresses that companies remained optimistic that business activity will be higher over the course of the year, while sentiment improved predominantly owing to planned increases in CAPEX, advertising efforts and greater market shares. On the flip side, service firms pointed to mild capacity pressures along with deteriorating productivity (just a few companies though) which might cap any potential wage pressures.


The GBPUSD is moving close to a lower boundary of a triangle pattern which may act as the nearest support for bulls. A breakout of this level could lead to a pullback toward a 38.2% retracement at around 1.3980. In turn, the closest resistance is obviously an upper limit of the same formation